The economy will slow substantially in 1989 and rising inflation and higher interest rates are likely to topple the country into a recession before the end of 1990, the nation’s top business economists predicted Monday.
The National Assn. of Business Economists said a survey of its members found them slightly more optimistic about growth prospects for this year than they were three months ago.
But by lopsided numbers, the economists were still predicting that the most likely date for the start of the next recession was 1990.
Three out of four of the economists surveyed expected a new recession sometime in the next two years. However, the number predicting a downturn in 1989 dropped to 19% in the latest survey from 40%.
Jay Woodworth, president of the association, said economists were more optimistic about 1989 in part because of signs that auto sales, retail spending and housing construction were holding up even with the increase in interest rates.
Surveyed Before Rate Rise
“The business economists feel that this expansion is not at the end of its string yet. We probably have another year or so to go,” Woodworth, senior domestic economist at Bankers Trust Co. of New York, said at a news briefing.
The new survey was taken before the latest round of credit-tightening on the part of the Federal Reserve Board. Last Friday, the Fed boosted its discount rate, the interest it charges to make loans to financial institutions, to 7%. A hike in the discount rate is the most dramatic signal the central bank can send of its intentions to push interest rates higher to dampen an overheated economy.
The business economists expressed strong support for the Fed’s inflation-fighting battle, with 70% expecting the board to boost interest rates further in the next six months.